Judge slams exclusion clauses as unfair

In a rare decision, an Ontario judge declined to award costs to an insurance company after dismissing a claim against it.

In Soczek v. Allstate, Allstate Insurance Company of Canada successfully argued that damage to a plaintiff’s house after her husband burned it down in an attempt to kill her did not fall under her insurance policy because of an exclusion clause.

In his decision, Ontario Superior Court Justice Edward Morgan dismissed the plaintiff’s claim, but he slammed Allstate, saying its “corporate conduct is less than admirable.”

Morgan refused to award costs to the insurance company, and he criticized the exclusion clause as unfair to innocent co-insureds, even though it is technically legal.

“H.L.A. Hart once observed that formally legal rules can be ‘unfortunately compatible with very great iniquity’. . . This case may prove his point,” Morgan wrote in the decision.

The case turned on whether an exclusion clause in the plaintiff’s insurance policy applied to her despite the fact she was an innocent party.

The clause said that the insurer would not cover damage or loss resulting from a criminal act conducted by anyone insured under the policy or damage caused by vandalism or a malicious act by a resident of the household.

The plaintiff, Wieslawa Soczek, was not seeking payment for bodily injuries from Allstate but for damages to the house.

Soczek’s husband, Jan, had doused her in gasoline before he set her on fire inside their home, giving her serious burns and causing significant damage to the home. He pleaded guilty to attempted murder and was sentenced to 12 years in prison.

In his decision, Morgan said the case highlights the province’s lack of legislation to protect innocent co-insureds who are victims of crimes.

“Several provinces have intervened to protect innocent co­insureds and have legislated this type of exclusionary clause out of existence,” he said.

“And yet, Allstate continues to capitalize on it in those jurisdictions that have not seen fit to extend legislative protection to an innocent consumer such as the Plaintiff. This case graphically illustrates the compounding of injuries which Allstate’s policy imposes on victims of domestic violence.”

Other provinces, such as Alberta, B.C. and Quebec, have enacted legislation banning exclusion clauses that prevent innocent insured parties from collecting, but Ontario has not followed suit.

“Our law results in justice and fairness on the vast majority of occasions, but sometimes it doesn’t, and this is clearly an example of one of those unfortunate situations where the law results in unfairness,” says Troy Lehman, a lawyer with Oatley Vigmond Personal Injury Lawyers LLP, who was not involved in the case.

The plaintiff’s lawyer, Alfred Kwinter, says he thinks the strength of the insurance lobby in Ontario has deterred the provincial government from implementing its own ban on such clauses.

Sheldon Gilbert, the lawyer representing Allstate, said that while the decision upholds a standard exclusion clause, “a reading of the judgment creates the extremely unfair impression that this exclusion to coverage is somehow unique to Allstate or that they have been the only insurer relying on it.”

“In fact, as Mrs. Soczek’s counsel is well aware, the same exclusion has be[en] relied upon by many other insurers for many years,” he said in a statement.

In the proceedings, Allstate maintained that the exclusion clause unambiguously applied to both co-insureds — Soczek and her husband.

Kwinter argued that applying the exclusionary clause would be completely unfair, as the purpose of such clauses is to prevent insured persons from benefiting from intentional wrongdoing. His client, however, was an innocent victim, he said.

“Why should an innocent party suffer?” he says.

“It shouldn’t apply because the person that is hurt is the innocent party that has nothing to do with the crime.”

Kwinter submitted a psychologist’s report, which argued that the husband may not have had the mental capacity to act intentionally when he lit the fire.

Morgan dismissed the report, as the psychologist had not examined the husband and noted that the husband’s guilty plea can be read as an admission that he intended to light the fire.

Allstate also argued that the plaintiff had taken opposing positions in her claim against the insurer and a successful claim she brought against her husband for $75,000 in punitive damages.

Allstate said the plaintiff had taken the position that her husband had intentionally and wilfully set the fire in her claim against him.

The judge said that the conflicting arguments reflected the impossible situation that the exclusion clause forced the plaintiff to take.

Kwinter says the claim against the husband was completely independent of the claim against Allstate.

Kwinter adds that he does not know yet whether his client will look to appeal the decision.

Gilbert said that despite the judge’s decision to dismiss the claim, his client has instructed him to speak with Kwinter “with a view to attempting to arrive at a mutually acceptable resolution.”

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